Tips for Preparing your Practice for Sale
Thinking about selling your practice now or in the near future? Before listing, you need to proactively assess and act on the six points listed below. Addressing these six points will add an equal number of benefits. Doing so will 1) maximize your practice’s valuation; 2) minimize the chances that a buyer will attempt to negotiate a lower price point to offset issues with the practice; 3) assure that your practice lists as a premium opportunity; 4) attract strong buyers; 5) prevent buyers from walking away; and 6) provide your buyer with a degree of legal protection.
Update Your Website
Impress potential buyers and clients with an updated, complete, and easy-to-use website. An underdeveloped or outdated website sends a signal to buyers that a practice does not have much to offer or has gone stale. I’ve seen this first hand, and recently with a listing for a very nice practice that enjoyed solid clientele and good profits. A poor website greatly diminished the practice’s appeal. Fortunately, updating a website is an easy improvement to make. For a few thousand dollars, you can create a website that impresses buyers and potential clients alike. NCI recently contracted with Sharp Innovations for a comprehensive website revision, and the results have elevated NCI’s online appeal and presence to a new level. You can learn more about Sharp Innovations at www.sharpinnovations.com.
Improve Your Physical Office
While increasing numbers of practices are transitioning to virtual work, and eliminating physical locations, many practices still have physical locations. If you do, fix it up and clean it up. Make sure your location looks professional (inside and outside, to the degree that you can). If your practice looks neglected, a buyer may assume you also neglect your clients (and clients may not get a good “feel” about the caliber of your services). Remember, the way your practice looks reflects directly on you as a business owner—for good and for bad.
Update and Repair Equipment
All of your equipment should be operational and current. While you don’t need to have the most recently released software and hardware, you do need to be sure that your technology is at least considered current. Likewise, outdated, poorly functioning, or nonfunctioning equipment is a red flag that additional expenses and annoyances lurk just around the corner for a buyer—and buyers tend to like turnkey practices. Lastly, current and operational equipment reflects well on you as the practice owner, as it shows that you care about and invest regularly in your practice.
Minimize Accounts Receivables
Although Accounts Receivables are not typically included in a sale, having a high percentage of accounts receivables reflects poorly on a practice. This gives the impression that a practice has too many “slow pay” clients. Prior to listing, collect as many outstanding payments as possible. While outstanding payments collected as of the date of closing are normally collected by the buyer and transferred back to you as the seller, you still want to minimize this as much as possible.
Provide Current Tax Returns and Financial Statements
Remarkably, many accounting practices do not have updated tax returns and financial statements! These are among the first documents a buyer wants to review when exploring the purchase of a practice. They need to be clear, accurate, and readily available. Here is a smart tip when you update your financial records: create a list of owner add-backs—items that you as the owner are paying for through the business that a buyer will not have to cover in his/her expenses. This adds to your EBITDA, which is frequently used to determine the overall value of your practice.
Secure Non-Compete/Non-Solicitation Agreements
If key members of your practice have not signed non-compete or non-solicitation agreements, this can greatly impede the sale of your practice—and perhaps make a sale impossible. Check with your state to determine whether non-compete agreements are enforceable. If not, consider requiring your employees to sign a non-solicitation agreement. Under a non-solicitation agreement, employees can compete, but they cannot solicit your clients upon leaving the practice. If they do, the new owner then has legal recourse under the non-solicitation agreement. When asking employees to sign a non-compete or non-solicitation agreement, think about providing some form of consideration to them for doing so. Your attorney will be able to advise you on appropriate options for this.
When it comes to selling your practice, the time-honored wisdom of the Boy Scouts’ motto comes to mind. Always be prepared! If you have questions and would like to chat about listing your firm for sale, call me at 856-304-1035 or email me at firstname.lastname@example.org
Powering your future,
Bruce J. Clark
Bruce J. Clark, CEO
Book an appointment here https://calendly.com/newclientsinc
Author, NCI Effect, Explosive Client Growth Plan for Accountants and CPAs
Beyond the NCI Effect, Sales Strategies That Matter to Grow an Accounting Practice
Author of the e-book, The Seven Secrets to Selling your Practice on Your Terms